What Is The Guaranteed Insurability Option?

One of the things that can confuse people when purchasing life insurance (and other types of coverage as well) is the various types of riders that are available. These riders are simply add-ons that can increase the coverage of your policy. One of these riders is the Guaranteed Insurability Option (GIO), also known as the Guaranteed Purchase Option (GPO). 

The GIO rider can work for you by giving you opportunities during the life of the policy to purchase extra coverage without having to go through medical underwriting. The insurance company will send you a notice from time to time (sometime stated in the policy itself) stating that you have a window of time called an "option date" to purchase more coverage. These dates usually fall on the anniversary of your policy and can be spread out every 3 to 5 years.

Of course if you purchase more coverage it will cost you more in premiums, and the additional coverage will be based on your current age. For instance, let's say that you bought a policy at age 35 and the premium is $40/month for $250,000 coverage. At age 45 you want to purchase more coverage (you may have had a life change or bought a bigger home or whatever), yet you have also had health issues recently. In the case your rate will increase because you are buying more coverage, but that new coverage will based on you being 45 years old now. 

As an agent I recommend this rider to people who are insuring small children because you just don't know what can happen down the road for a your person when it comes to their health. 

The rider itself can add a small amount to your premium but should be considered if you have a family history of medical issues or if you have a medical issue that will may get worse. 

Here's a brochure from Illinois Mutual, a great company that has some awesome policies. 

As always, let us help you if you have questions or comments. You can visit our site and book a short phone appointment. In the meantime stay healthy and thank you for your referrals.

Chris Castanes is the president of Surf Financial Brokers, helping people find affordable life and disability insurance coverage. He's also is a professional speaker helping sales people be more productive and efficient and has spoken to professional and civic organizations throughout the Southeast. And please subscribe to this blog!

What Keeps You Up At Night?

One of the hard parts of being an insurance agent is getting people to have an honest conversation when it comes to their finances and how their situation affects future decisions. Some clients either don't want to discuss their goals or simply have not taken the time to figure out what their goals are. 

There have been many times when I have sat down with someone and asked, "Where do you want to be three years from now?" The look on the client's face is priceless. They really don't know. I'm not trying to embarrass them or make them feel bad, but the point of the conversation is that many people are just meandering through their financial issues, paying bills as they come in and buying stuff when they have money put aside.

Just as you would think, most people don't have a clue what their goals are. They say that they haven't really considered it before. Here's an exercise you can do (it's the same one I use with my clients) and it will help you make a game plan.

Take a sheet of paper and put today's date at the top. Next to that, put the same date but three years from now. Underneath the dates make three columns, with headings "Personal, Professional, Financial". Under each heading just write what you want to happen within the next three years. 

There are no wrong answers. I've had people give me all kinds of answers from saving $100,000 (financial) to owning a new boat (personal). One lady who was a cosmetologist put "open a cosmetology school" under the professional heading. Knowing what the goal is helps tremendously but that is just the first part of the conversation. 

Then I ask what would happen to that goal if the client were to die unexpectedly or to become chronically ill. Will they still be able to reach those goals if a potential landmine were to get in the way?

Every once in a while one question will get the client to open up and that question is "What keeps you up at night?" As a husband and father, there have been many times when I have lain in bed thinking about retirement, sick family members, paying for my child's education and a long list of other issues that can, and probably will, show up down the road. It can be overwhelming.

Another part of this is that people will hear advice, through friends or the media, which may sound good, but may not be applicable to their situation. One of my pet peeves is "financial gurus" giving generic advice. A single dad who makes under $50,000 a year and has a sick parent will have an entirely different situation than a married couple who have a six-figure income and no debt. Much like fingerprints, no two financial positions will be the same.

When I sit down with someone and they say they want a 20-year term life insurance policy for $100,000, I ask questions like:

• How did you decide that was the amount of insurance you needed?
• Will that cover any debt you have, including your mortgage?
• Will that amount replace your income?
• What do you want to accomplish with that amount of coverage?

Sure, this line of questioning can make someone feel uncomfortable, but my job is to make sure that the client gets what they need. Taking the time to get an accurate number for the face value of a life insurance policy will make sure that the client is getting what they actually need.

Don't let this stuff stress you out. Sit down with your agent or make a phone appointment to discuss how you can do what is best for you and your family. And in the meantime, please stay healthy!

Chris Castanes is the president of Surf Financial Brokers, helping people find affordable life, disability, long term care, cancer, accident and other insurance coverages in North Carolina, South Carolina, Virginia, Tennessee and Georgia. He's also is a professional speaker helping sales people be more productive and efficient and has spoken to professional and civic organizations throughout the Southeast. And please subscribe to this blog!

What Is The Convertibility Feature In Term Life Insurance?

People who buy term life insurance usually do it because it is extremely affordable and it fits well within their budget during their working years. At some point down the road, however, a permanent policy that can build cash value may seem more attractive. Perhaps the insured can afford to pay a bit more or they just don't need as much coverage. In other words, situations change.

Most term life insurance policies include a stipulation that one can "convert" the policy to a permanent policy, either a universal life or a whole life, within a specific time frame. Instead of purchasing a new policy, one can convert all or some of their current policy, which is much easier. That is because with a conversion there are no health questions or exams. Yes, the new policy will be based on the age of the insured at the time of the conversion, but that would be the same if one were to purchase a new policy.

Without having to worry about health questions, one can convert their policy regardless of changes in health. For example, say you purchased a 20-year term policy 10 years ago, but since then your health has declined significantly. A heart attack, cancer or diabetes would probably keep you from getting a new policy or have one issued at a higher premium . However, you could convert some or all (depending on the insurance carrier) of the face amount without being concerned if your current health situation will affect the rates.

In other words, if you were healthy when you bought the term policy, the new permanent policy will be priced as if you were still healthy, even if you are not.

Why do people want to convert a term life policy? The first reason is to lock in on a premium that will not increase. At the end of the policy's term period, the rate will jump up dramatically and will do so each year. This becomes an "annual renewable term" (ART) which in essence is a series of 1-year term policies. No one really wants that. 

On the other hand, permanent policy will stay the same price as long as you continue to pay the premiums. No more having to worry about outliving your life insurance.

Another reason people will convert a term policy is to start building some cash value. That money grows inside the policy tax-free and can be used down the road for all kinds of purposes*. The earlier one converts the policy the faster the cash value grows. 

The important point is too find out when you purchase a policy as to what your options are. Some carriers will only let you convert in the first 10 years while others will allow for a conversion anytime before the term ends. 

Also, find out what kind of policies you can convert your term policy to. You may not want a traditional universal life policy and that may be your only option, while other companies only have whole life. These are good questions to ask your agent, or drop us a note and we'll help you out. 

Know what your options are when purchasing life insurance! 

*Depending on the amount of cash that has accumulated in a policy, the funds can be either surrendered (cashed out) or borrowed. Surrendering the cash value could have tax implications, but getting the money in the form of a loan is a great way to use the funds for a retirement supplement. Any outstanding loan amounts will be deducted from the face value of the policy at the time of death.

Chris Castanes is the president of Surf Financial Brokers, helping people find affordable life, disability, long term care, cancer, accident and other insurance coverages in North Carolina, South Carolina, Virginia, Tennessee and Georgia. He's also is a professional speaker helping sales people be more productive and efficient and has spoken to professional and civic organizations throughout the Southeast. And please subscribe to this blog!

Do I Need To Put My Life Insurance Inside a Trust?

Since we are in the middle of tax season I have tried to keep this week's topics around insurance and taxes. The last one is a bit different but may be of use to some people.  

As the title of this post implies, we are going to take a quick look at trusts and why people use them for life insurance purposes. And like my previous posts, I am obligated to give my disclaimer that I am not a tax expert, so if you have more specific questions about the tax implications I recommend consulting a tax professional.

Why would anyone want to put life insurance inside of a trust, you ask? For several reasons, actually. For instance, there are those people who have special needs children and may be interested in funding their care as they become special needs adults. In that instance, we use a Special Needs Trust and a "second to die" life insurance policy to fund it when both parents pass away. 

However, for the purposes of this blog we will look at Irrevocable Life Insurance Trust (ILIT). When we (or our attorney) create a trust, it's basically like creating a whole new entity, like a new person. The purpose of using the trust for life insurance is for estate tax purposes. The life insurance policy inside the trust is no longer part of the estate, so it can't be taxed. 

The current federal estate tax exemption is $11,700,000, which is very high and adjusted for inflation each year. However, the amount is scheduled to drop to $5,000,000 on December 31, 2025. And now that the Democrats are in control of congress it may drop sooner. 

I realize that for many people these numbers may seem extremely high. At the same time, I know a business owner who purchased a piece of land many years ago and opened a small restaurant. The value of that property increased dramatically over years since he bought it, so his house and business are close to reaching that $5m threshold. When I discussed it with him, he was totally unaware.

Another thing to consider is that you can name a trustee, who may be a family member but can also be a friend or even your attorney. This trustee can use the policy proceeds (death benefit) for your beneficiaries without giving them full control of the monies. This is important if you have small children, a second marriage or if your beneficiaries can't manage the money on their own. 

My advice when it comes to these kinds of situations is to consult a good estate attorney who has experience in these matters. Just because an attorney can make a will does not necessarily mean they understand trusts. When the word "irrevocable" is in the name it means you can't change things later. As a good attorney friend of mine once said to me, "Get a lawyer who has done this before. You don't want one to practice on your client."

There are a few rules you need to be aware of. Some are:

1. You can transfer existing policies into the trust but there is a three year lookback, so if you die in the first three years the death proceeds will be included in your estate and potentially taxed. 
2. The estate is a separate entity and will need it's own tax identification number. Because of this, your premiums will need to be "gifted" to the trust. The trust will, in turn, pay the premiums to the insurance company.

Overall, a trust can be a great way to use life insurance to pay estate taxes. And as I stated earlier, it's best to consult an estate attorney and a tax professional if you have questions. In the meantime, please stay healthy!

Chris Castanes is the president of Surf Financial Brokers, helping people find affordable life and disability insurance coverage. He's also is a professional speaker helping sales people be more productive and efficient and has spoken to professional and civic organizations throughout the Southeast. And please subscribe to this blog! 

Can Employees Get Tax Breaks?

Since it is tax season I thought I would share a few ways that you can use and maximize your insurance to help lessen or avoid a big tax bill over the next few posts. Some of these ideas may be implemented immediately, while others will help you down the road. Like a wise man once said, "If you fail to plan, then plan to fail."

First and foremost, I have to give the obligatory disclaimer that I am not a tax expert and one should consult their own tax advisor before implementing any of these strategies. Remember that tax laws are constantly fluid and can change as political parties rotate in and out of Congress.

Also, I want to let you know in advance that not all of these plans will work for everyone, but hopefully there will be a nugget or two in here for everyone. With that said, let's get started.

For those of us who work for an employer and are fortunate enough to have medical benefits, find out if those benefits are being "pre-taxed". Section 125 of the IRS tax code allows your allows employers to deduct your benefits from your pay before figuring out what your taxable income is. By simply moving your deductions "above the line" it can save you (and your employer) some money, with estimates around 20-25% on the costs of those benefits. The savings, in other words, come in the form of paying less taxes. And since your employer has to match your FICA* (Social Security) portion of the deduction, that can be decreased for them as well. 

If you have an enrollment company or a worksite insurance company providing ancillary products like dental, vision, disability and other insurance products, odds are they can set up and handle the administration of a pre-tax plan. Many of these companies will do it at no charge for your employer if there is a minimum number of participants. 

Be aware of a couple of items though. First, life insurance can not be pre-taxed. Since life insurance proceeds are generally tax-free to begin with, the IRS is not going to allow pre-taxing. Also, certain benefits can be pre-taxed but really should not be. 

I have seen businesses where their disability insurance, for instance, was pre-taxed. When this is the case, there will be a huge problem if an employee needs to file a claim, as it will be taxed as income. As most disability policies pay around 60-65% of a person's gross income, having that partial pay be taxed can be a financial nightmare for a family struggling to pay their bills.

Other deductions that are not necessarily insurance products can be used for pre-tax savings as well. A 401(k) plan can help you out down the road for retirement and should be implemented if offered. These plans were created in the late 1970's as a way for employers to create a tax-advantaged savings account for their employees. Unfortunately many employers replaced pensions with these plans, mostly because it saved the businesses a lot of money. 

If your employer offers a 401(k) plan take advantage of it and the tax savings that come with it. But be aware that it is not a true "retirement plan" and is basically a "savings plan". By allowing the employee to allocate their money as they wish, it also exposes them to a lot of market risk. 

After the debacle at Enron years ago, laws were enacted to heavily regulate the 401(k) plans. And after the financial recession of 2008 many employers changed their plans or did away with them altogether. Do some research or ask your tax advisor what is best for you.

The next few posts will continue on the theme of insurance and taxes so stay tuned. In the meantime, please stay healthy!

*There is a downside to saving all of this money on taxes by using the Section 125 plan. By reducing your taxable income while working, it also reduces your FICA contribution. This, in turn, can reduce your the amount of your Social Security check when you are eligible to receive these benefits. If you are paying less in, plan to get less out.

Chris Castanes is the president of Surf Financial Brokers, helping people find affordable life and disability insurance coverage. He's also is a professional speaker helping sales people be more productive and efficient and has spoken to professional and civic organizations throughout the Southeast. And please subscribe to this blog!

Do People Have Enough Life Insurance?

Many Americans do not have nearly enough life insurance to support their families’ needs. In fact, about 44% of families say they would face financial hardship in six months if the primary wage earner were to die, noted David Levenson, president and CEO of LL Global, in a recent video presentation. Now, a group of life insurance organizations is aiming to change that.

LL Global, the parent organization of life insurance researcher LIMRA and LOMA, is helping lead an effort with industry trade associations and more than 60 of their largest member companies and distribution partners to close the life insurance coverage gap. One initiative is encouraging financial professionals to engage with their existing clients to look at the adequacy of their protection. 

"Most people think it’s just to pay for funeral expenses; but the word ‘life insurance’ is really a misnomer," Elsie Theodore, a Virginia-based regional vice president of Primerica, told Investopedia. "Can anyone really insure someone’s life? No, ‘life insurance’ is really income replacement. Its purpose is to replace the income of the breadwinners in the household."

As a general rule, she added, “When you are trying to determine how much coverage you should have, you must first look at your annual income then multiply by 10. You make $100,000 a year, your life insurance should be at least $1 million.”

That number may seem high but the priority is making sure that loved ones can stay in their home, take care of the everyday bills and even provide for education costs if children are still in the picture.

A major problem today, Theodore noted, is that many people rely solely on the group life insurance provided by their employer, which is often inadequate. Typically those policies only provide coverage for one or two years salary replacement. Also, they may or may not be portable, which means if the the employee changes jobs the policy might not be there when their family needs it most. 

According LIMRA’s research, about 60 million American households don’t have the proper protection for their families, with an average deficiency of $200,000.2

What's more, the problem is worse than it was in the past. While 63% of Americans had life insurance coverage a decade ago, that number had dropped to 54% by 2020, LIMRA says.

There are a lot of contributing factors to the incomplete coverage, including changes in individual life
distribution, employment-based benefits, worker participation rates, family and household make-up, and population demographics. People also have competing financial priorities.

In addition, there are misconceptions about price point, need, and ease of purchasing, particularly among Millennials. This is ironic when you realize that most of them grew up with phones and most agencies are trying their best to make insurance coverage accessible on mobile devices.

As LIMRA points out, the COVID-19 pandemic has highlighted the fragility of life and focused more Americans on the role of life insurance.

Theodore recounted one particularly sad situation: "After a few attempts to get this one client to sit with me and get her plan started, she called me because she had 13 members of her family die from COVID-19 and not a single one had insurance. That was an unfortunate wake-up call.”

The life insurance industry has also responded to the pandemic by adapting its sales practices. Companies have made significant advancements in the ability to deliver a fully digital purchase experience so consumers can choose to buy a policy when, how, and where they want. Understandably, insurance carriers are increasing the availability of web based applications and decreasing the requirements for in person medical exams. 

If you aren't sure if you have enough coverage, let us help. In the meantime, please stay healthy!

Chris Castanes is the president of Surf Financial Brokers, helping people find affordable life and disability insurance coverage. He's also is a professional speaker helping sales people be more productive and efficient and has spoken to professional and civic organizations throughout the Southeast. And please subscribe to this blog!

What Is The Current State Of Long Term Care? Part 2

In the previous post we looked at Long Term Care (LTC) services and when people need them. Included in that summary was how expensive LTC can be. As discussed, someone can work their whole life to build a nest egg of assets, only to have those assets depleted due to a chronic illness. The alternative is to shift that financial risk to an insurance company by taking out a policy while one is still insurable. 

We also covered one of the options which was a life insurance policy with "living benefits" or a LTC rider to help cover these expenses. One advantage of this is that if the insured should die unexpectedly, the policy will still pay a death benefit.

Another option is the traditional stand alone Long Term Care Insurance (LTCI) policy. These insurance policies have been around for a relatively short period of time and there have been a lot of changes over the years. And even though they are pretty comprehensive in that they can help pay for care in a facility or for "in home" care, they also can help pay for other expenses, like construction of a ramp or "informal caregiver" training, when a family member is involved. 

There are other issues that one needs to be aware of when it comes to LTCI. First, the underwriting process is different (as in stricter) when someone applies for coverage. The carrier may want to have a cognitive test done, for instance. I had a client get declined for coverage because he had a history of heart problems and smoked a few cigars each week. Separately they may not have been a problem but the underwriter put the two together and saw that as a potential risk. 

Also, most stand along LTCI policies usually have a provision that allows the carrier to raise the rates on the policy, unlike the previously mentioned life insurance which would "lock in" on a rate. After the financial crisis of 2008, several companies increased their rates on their in-force books of business, some doing it more than once. For those who are trying to do the right thing and plan ahead, this provision can come back to bite them.

Yet another thing to consider is that a lot of insurance carriers have gotten away from offering LTCI policies. These companies have either stopped selling new policies but still keep the old ones on their books, or they have sold the books of business to other carriers. This is due to the fact that when these policies were developed they did not have a lot of claims history to go on when setting the premium rates. As claims mushroomed, the number of carriers offering these policies shrunk. 

One more thing to be aware of is how these policies pay. Typically, LTCI pays claims as a reimbursement, which means the insured will need to send the bills for LTC expenses to the insurance company. Most nursing and assisted living facilities will take care of this matter for you, but remember that if you are a patient in one of these facilities you may need to rely on a family member to handle this. 

With all of that to consider, I still think that LTCI can be a great value as long as the client is aware of how they pay benefits and the multitude of features. A good agent will discuss all of this with a prospective client in detail and should also include other family members as well. These policies may seem expensive but can save you and your loved ones tens of thousands of dollars.

In the next post we'll look at one more option that is available. In the meantime, please stay healthy! 

Chris Castanes is the president of Surf Financial Brokers, helping people find affordable life and disability insurance coverage. He's also is a professional speaker helping sales people be more productive and efficient and has spoken to professional and civic organizations throughout the Southeast. And please subscribe to this blog! 

Can I Get A Quote For Cancer Insurance?

First off, I hope everyone had a great Christmas! It's definitely been a tough year for everyone and as we move toward 2021 my wish is for all to be healthy and happy.

And speaking of healthy, we are currently enduring one of the deadliest pandemics in recent history. The cacophony of news coverage regarding Covid-19 is nearly drowning out the other health issues we face, including cancer. Unfortunately, there were some celebrities we lost this year due to cancer, including Chadwick Boseman, Eddie Van Halen and Alex Trebek. It seems as if the only times we are made aware that cancer is still with us is when we hear that famous people die from it.

As a vaccine for Covid-19 becomes more widely available, our population will still need to stave off cancer and be prepared for treating it. Statistically, 1 out of every 2 men and 1 out of every 3 women will face some sort of cancer in their lifetime*. While the medical side of the treatment has made great gains, the financial strains it puts on families is still enormous. 

This is where a cancer insurance plan can be a great fit for you. First and foremost, these plans are affordable. A few dollars each month can cover an individual with or without a spouse, as well as children. For those people who are concerned that cancer runs in their family, that is important. 

Also important is what a cancer plan can cover. Out-of-pocket expenses related to cancer can be exorbitant. For example, medical insurance may not cover the cost of experimental treatments or some medications. It most certainly does not cover the cost of travel or lodging if someone is receiving treatments in a hospital not located in their own town. All of these items add up. Not being able to work and losing income only makes the situation worse. 

Of course the financial stress on a family as a result of a cancer diagnosis is not the priority at the time. The main goal is to be cancer free and survive. But alleviating the money problems as they happen can be fruitful after treatments end and relieve stress. 

So what can one do to make sure they (or their loved ones) don't have to face the harsh reality of financial insecurity of a cancer diagnosis? The first step is to find a cancer insurance plan that meets their needs and fits in a budget. 

When discussing needs, there are several questions to be answered. 

• Are you trying to cover yourself, you and a spouse, or the entire family?
• Would you like your policy to pay a lump sum of money all at once or would you like to receive your benefits as you are undergoing treatments?
• Does the plan offer optional riders which can increase or decrease my premium?

This is why we are in the process of adding a cancer insurance quoting tool to our website. It gives you an opportunity to see how a "treatment option" plan works, along with the benefits and optional riders. From there, you can click on the "Get Quote" button and enter the information needed. If you like what you see you can even proceed to beginning the process of applying. On the whole, the process can take about 10 minutes. 

Of course, if you have questions about any of this, we are available to help. In the meantime, please stay healthy!

*American Cancer Society

Chris Castanes is the president of Surf Financial Brokers, helping people find affordable life and disability insurance coverage. He's also is a professional speaker helping sales people be more productive and efficient and has spoken to professional and civic organizations throughout the Southeast. And please subscribe to this blog!